Prospect's Chapter 11 case, 2025–2026

analysisBeginning on January 11, 2025 PMH and affiliated debtors filed voluntary Chapter 11 cases in the U.S. Bankruptcy Court for the Northern District of Texas, jointly administered under PMH's case, In re Prospect Medical Holdings, Inc., No. 25-80002 (SGJ). The hospital debtors filed on January 11, 2025, among them Alta Hospitals System, Prospect East Holdings, Hospital Advisory Services, Prospect CT, Prospect CharterCARE, Prospect CharterCARE RWMC, Prospect CharterCARE SJHSRI, Alta Los Angeles Hospitals, Southern California Healthcare System, Prospect Oldco NJ, Prospect Crozer, Prospect CCMC, Prospect DCMH, Prospect Waterbury, Prospect ECHN, the Rockville and Manchester hospital companies, Coordinated Regional Care Group and Prospect East Hospital Advisory Services. The physician debtors followed on July 7, 2025 and the top-level holding debtors on September 19, 2025: Chamber Inc. (No. 25-33651), Ivy Holdings Inc. (25-80482) and Ivy Intermediate Holding Inc. (25-80483). PMH's chief restructuring officer stated that each debtor is an affiliate because PMH directly or indirectly owns or controls 20% or more of its outstanding voting securities. The 30 largest unsecured creditors in Alta Hospitals System's petition include Cerner Corporation, MPT Operating Partnership LP, the California Department of Health Care Services and the Centers for Medicare & Medicaid Services. ^{1 2 3 4 5 6}

analysisPaul Rundell, a managing director of Alvarez & Marsal North America, LLC, has been chief restructuring officer of PMH and the other debtors since January 11, 2025, and Alvarez & Marsal is the debtors' financial adviser; the Rhode Island Attorney General's 2024 consultant had noted that PMH recently engaged Alvarez & Marsal to identify and implement revenue-cycle improvements. At the petition date PMH's board had six directors: Samuel Lee, Von Crockett, David Topper, Mitchell Lew and the independent directors Alan Carr and Jeremy Rosenthal. On October 4, 2024 PMH had created a special committee and appointed Carr and Elizabeth Abrams as independent directors. On January 20, 2025 PMH formed a Transaction Committee whose voting members were Carr, Rosenthal (chair) and chief executive Von Crockett, with Rundell and general counsel Frank Saidara as advisory members; Rosenthal is a partner of Force 10 Partners, a restructuring advisory firm. ^{1 7 8}

analysisThe chief restructuring officer estimated in the first-day declaration that at the petition date the debtors had about 12,500 employees and employee-related obligations of $229.6 million, including $112.6 million of benefits of which $47.8 million were retirement benefits, and that they owed nearly $48 million in underfunded 401(k) matching contributions, which they described as an ERISA violation. Their cash management system comprised 194 bank accounts at eight banks with about $3.35 million of cash at the petition date; receivables from the facilities were collected into a master account and PMH paid payroll and vendors on behalf of other debtors, creating intercompany receivables and payables among debtors and non-debtor affiliates. At the outset of the case JMB Capital Partners Lending, LLC committed to provide $100.0 million of new-money debtor-in-possession financing. ¹

analysisAccording to PMH's chief restructuring officer, on October 30, 2023 the U.S. Department of Justice issued a civil investigative demand to PMH under the False Claims Act alleging that PMH upcoded certain secondary diagnoses on inpatient claims submitted to federal health programmes, and on May 17, 2024 a second demand to Prospect Medical Systems, LLC, a non-debtor subsidiary of Prospect Intermediate Holdings, alleging false diagnosis codes submitted to increase risk-adjusted payments. The chief restructuring officer also stated that the Connecticut Department of Consumer Protection issued two civil investigative demands under the state's Unfair Trade Practices Act: on January 11, 2024, regarding a breach of Prospect Medical Systems' electronic files and an allegation that it failed to safeguard patient information after the August 2023 cybersecurity incident, and on April 19, 2024 to Prospect Medical Systems regarding hospital funding practices. A civil investigative demand is an investigative request and does not establish a violation; no outcome of these inquiries appears in the retained records. Class actions by people affected by the 2023 data breach against PMH and Southern California Hospital Healthcare System Inc were consolidated as In re Prospect Medical Holdings Inc Data Breach, No. 2:2023cv04936, in the Eastern District of Pennsylvania (Judge Wendy Beetlestone), filed on December 13, 2023; the retained docket record does not show the outcome. ^{1 2}

analysisAn April 2026 investigative report, citing state officials, states that Prospect failed to pay state and local governments more than $135 million in taxes, did not pay vendors for equipment, services and supplies, and closed four safety-net hospitals in a Philadelphia suburb that it had promised to keep open; it also reports that Prospect's insurance subsidiaries were based in Vermont and the Cayman Islands and that Rhode Island's Department of Business Regulation acknowledged that Prospect had filed no self-insurance documents since 2019 despite self-insuring. The tax total is the publication's figure. ³

analysisThe chief restructuring officer recounts that the group expanded into Texas in February 2012 with the Nix Health Care System and into New Jersey in March 2016 with East Orange General Hospital, that losses led Prospect to close its San Antonio hospitals in 2019 and sell its Texas real estate in 2020, and that in October 2021 Prospect OldCo NJ, Inc. (formerly Prospect EOGH, Inc.) sold East Orange General Hospital to EOH Acquisition Group, LLC. A schedule to the exit financing lists suits brought by PMH that continue after the plan: Prospect Medical Holdings, Inc. v. EOH Real Estate Holdings, Inc. in the New Jersey Superior Court (Essex County, ESX-L-02160-23), alleging breach of the implied covenant and seeking to pierce the corporate veil, and a suit by PMH and Prospect OldCo NJ in Los Angeles Superior Court (22STCV27936) alleging fraud and unfair competition. These are PMH's claims as plaintiff; their merits and outcomes are not in the retained records. ^{1 4}

analysisIn a December 11, 2025 declaration, Transaction Committee chair Jeremy Rosenthal stated that an investigation with counsel from Katten examined transactions from 2018 to 2021 in which PMH transferred about $203.6 million in total to certain current directors and officers or entities they control; the committee concluded that the debtors have viable claims relating to some of these transfers, and that $199.4 million of the $203.6 million went to David Topper and Samuel Lee, who were therefore excluded from the plan's releases. This is the committee's conclusion that claims are viable, not a court finding, and no judgment on these claims appears in the retained records. In their July 2025 operating report the debtors stated that all post-petition payments by the hospital and physician debtors to insiders were limited to ordinary-course wages and benefits. ^{1 2}

analysisThe plan's Non-Released Parties Schedule, filed on October 1, 2025, provides that persons including Lee, Topper, the David & Alexa Topper Family Trust, Leonard Green & Partners, Green Equity Investors V, L.P., Green Equity Investors Side V, L.P., Ivy LGP Co-Invest LLC, the former Leonard Green directors Alyse M. Wagner, Michael Solomon and John Baumer, and former executives including Mike Heather, Jeereddi Prasad, Mark Johnson, Michael Sarian, Donna Vigil and George D. Pillari are not released parties; the debtors reserved the right to modify the schedule. Exclusion from the releases preserves possible estate claims; it is not a finding of liability. Under the plan supplement, the estate's causes of action against these parties, including avoidance actions and claims for breach of fiduciary duty, aiding and abetting, unlawful dividends and unjust enrichment, pass to the GUC Trust. Leonard Green and its affiliates did not respond to a December 2025 newspaper request for comment on the designation. A December 2025 newspaper report states that at a hearing that month Judge Stacey Jernigan noted that Leonard Green, Lee and Topper had been named non-released parties, and that an attorney for the trust managing Prospect's assets said people would have causes of action brought and the trust would work to bring as much money back in when the time was right; no such suit appears in the retained records. ^{3 4 5}

analysisAn April 2026 investigative report states that the bankruptcy court approved $10 million to pursue claims against former Prospect principals, with Leonard Green, Lee and Topper as the main targets, and quotes the unsecured creditors' committee counsel, Charles Persons, telling the court at a December 12 hearing that potentially hundreds of millions of dollars could be recovered; it also reports that the bankruptcy automatically stayed more than 300 lawsuits seeking more than $800 million in damages. The court order approving the funding is not among the retained records. The report states that Leonard Green declined to respond to its questions, that Lee could not be reached for comment and that Topper answered “no comment”. ⁶

analysisThe debtors filed their first plan and disclosure statement on May 23, 2025, and the United States Trustee objected to the disclosure statement on June 18, 2025. A joint plan was filed on August 27, 2025 (Docket No. 2986); the next day the court approved the disclosure statement and set a confirmation hearing for October 14, 2025, later adjourned. After further amendments the court confirmed the Amended Joint Chapter 11 Plan on December 15, 2025. On March 6, 2026 the debtors gave notice that the Second Amended Joint Chapter 11 Plan had become effective; the notice states that the court approved the plan's release, exculpation and injunction provisions and that the plan binds the debtors, the plan administrator, the GUC Trust and its trustee and all holders of claims and interests. ^{1 2 3}

analysisUnder a trust agreement dated March 6, 2026 the debtors created the Prospect GUC Trust, sited in New York, to collect, administer and distribute trust assets, including assigned estate causes of action, for the backstop lender and general unsecured creditors; Steven Balasiano, founder of MHR Advisory Group, was appointed trustee, with Kelley Drye & Warren LLP as counsel. Under a plan administrator agreement dated March 5, 2026, Saidara Group, Inc., a California corporation acting through Frank Saidara, was appointed plan administrator for PMH and its debtor affiliates at $72,500 a month; the plan supplement states that no insider of the debtors was expected to be employed by the plan administrator. Saidara had filed a declaration supporting the Astrana sale on May 19, 2025. ^{4 5}